Scuola Mattei

MASTER MEDEA
A.A 2004-2005

GTL TECHNOLOGY
AND IT’S ROLE IN THE
WORLD ENERGY MARKETS

Allievi: Nadia A. Genovese

Armando Gorlani
Andrés H. Arroyo P.

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 INDEX

1. INTRODUCTION

1.1 Technologies for Natural Gas exploitation........................................................................................4

2. GTL’s ROLE IN THE WORLD ENERGY MARKETS

2.1. What is GTL?...................................................................................................................................7

2.2 Key Drivers.......................................................................................................................................9

2.2.1 Strategic and Market Drivers....................................................................................................9
2.2.2 Other Strategic and Market Drivers.........................................................................................11
2.2.3 Environmental Drivers.............................................................................................................11
2.2.4 Other Environmental Drivers...................................................................................................14
2.2.5 Economic Drivers ....................................................................................................................14

2.3 GTL Drawbacks................................................................................................................................16

2.4 GTL against LNG?..........................................................................................................................16

3. INDUSTRY STATUS

3.1 GTL History.....................................................................................................................................18

3.2 GTL Products and Characteristics....................................................................................................19

3.3 GTL Actors.......................................................................................................................................22

3.4 Current Status of GTL Projects and Future Outlook........................................................................23

4. GAS TO LIQUIDS (GTL) CONVERSION

4.1 Products…........................................................................................................................................26

4.2 The Gas to Liquids process…….......................................................................................................27

4.2.1 Feed pre-treatment………………………………………........……………………………...28
4.2.2 Syngas production………………………………………..........……………………………...28
4.2.3 Syngas Conversion……………………………………….........……………………………..30
4.2.4 Fischer-Tropsch Synthesis……………………………….........……………………………...31

4.3 Oxygenate process............................................................................................................................34

4.3.1 Methanol Process………………………………………….........…………………………….35
4.3.2 Methanol to Gasoline Process………………………………….........………………………..36
4.3.3 Methanol to Olefins Process……………………………………….........……………………36
4.3.4 Dymethyl Ether (DME) or Dimethoxymethane (DMM)………….........…………………….36

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4.4 Direct Conversion of gas…………………………………………………………………………..37

5. GTL ECONOMICS

5.1. Potential feedstock resources and perspectives…………….........………..…………………….40

5.2. The Geopolitics of Gas to Liquids (GTL) and the OPEC cartel behaviour.…………………….43

5.3. Financial Feasibility of GTL...……………………………….........…………………………….45

REFERENCES…………………………….........………………………………………………..49

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 1. INTRODUCTION
1.1 Technologies for Natural Gas Exploitation
Natural gas demand around the world has increased by 75% over the last 20 years: there is
potential for that consumption to grow by up to 3% a year over the next quarter of a century .
That means demand volumes could double in 25 years. There has been a dramatic increase in
the use of gas for primary energy use (electricity and heating). This is especially so where gas
is available from gas fields near urban centres and when transport is economically feasible.
There has also been a dramatic increase in the use of gas for the production of ammonia
(fertiliser) and methanol. Both there commodities can be made from gas by similar
technology to petroleum feedstock based routes.
The main reason behind the increase is that gas is relatively clean, cheap and easy to access
once infrastructure is in place. However, despite several valiant attempts and extensive
research expenditure, up to now gas has failed to make any significant in-road into the
transport fuel sector and non in-road into commodity plastics production.

Fig 1. Portfolio Energy demand 2000-2030.↑

Different uses of Gas Æ

Another key advantage of gas is its availability. There are significant gas reserves already
available but also the potential for much more to be discovered as more exploration for gas is
undertaken. During the last twenty years the proved reserves of natural gas have enormously
increased world wide, reaching those of oil in terms of barrels of oil equivalent (boe).
Around 80% of such reserves are assembled in 12 countries which have, to respect of oil, a
much more diversified geographical distribution.

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 Fig 2. Gas reserves (billiard m3)

Fig 3. Gas reserves and gas/oil ratio.

In some countries gas is present in greater quantity in comparison to oil. A useful indicator
of the weight that the gas resource has in a country can be represented by the relationship (R)
between the reserves of gas expressed in barrels oil equivalent and those of oil expressed in
barrels. “Gas provinces” are geographical areas in which the development and the
transportation of gas to the markets is of particular importance. Apart from the “historical”
areas such as the Russian Federation and Algeria, there are emergent basins in
Caspian/Central Asia area (Kazakhstan, Uzbekistan, Turkmenistan), the Asian Pacific
(Malaysia, Indonesia, Australia), the Caribbean (Trinidad, Venezuela), without obviously
forgetting the Persian Gulf countries, among which Qatar and Iran who have recently shown
interest toward the option of marketing their gas.

Fig 4. Gas production by region Æ

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The physical nature of natural gas, very different from that of oil, needs elevated costs for its
transport from “remote” areas to the markets of consumption, primarily Europe and the
United States. Accordingly, only 20% of the gas produced is object of transportation on long
distances, 5% via LNG (liquefied natural gas) and 15% via pipeline. Until today, the natural
gas market seems to be essentially as regional one.
The difficulty in finding an economic exploitation of gas often brings a waste of this
resource, like in the cases of production of oil fields which have an associate amount of gas.
Studies show, for example, that fields that produce both oil and gas, in which gas is released
in the atmosphere, burnt or re-inserted in the ground, are equivalent to a total amount of gas
reserves of 11.700 million meters cubes (8% of total proved reserves). A big part of this gas is
characterized by extremely low production cost (<0,25 US$/MMBtus), considering the fact
that the investments for the exploration and the development of the fields have already been
faced to allow the production of oil.

What discussed pushes towards the development and the employment of technologies that are
able to improve the economic exploitation of natural gas, reducing the general costs of
transportation to the markets. The abundance of natural gas reserves, the particular interest
that different producer countries have in the valorisation of such resource, as well as the
market perspectives, are stimulating industrial projects based on consolidated technologies
(gas pipelines, LNG) and on new emerging ones (Fischer-Tropsch GTL).

Fig 5. Different gas route to the market.

• Possibility to use existing infrastructure: lower CAPEX

Gas conversion (GTL) • Optimal for diesel conversion

• High CAPEX
LNG • Optimal for high gas capacity fields
• High CAPEX
• Most economic transportation system
• Optimal for high gas capacity fields
PIPELINE
• Dependance on geo-political stability issues
• Limits on high distances

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 Fig 6. Optimal transportation choice as a function of distance.

The integration of the different technological options, based on the characteristics of the
production sites and of the destination markets, seems to be the approach that will allow the
optimal exploitation of the reserves.
2. GTL’s ROLE IN THE WORLD
ENERGY MARKETS

2.1 What is GTL?

Gas-to-Liquids is a process for converting natural gas into synthetic oil, which can then be
further processed into fuels and other hydrocarbon-based products. In the simplest of terms,
the GTL process tears natural gas molecules apart and reassembles them into longer chain
molecules, like those that comprise crude oil.
The technology used is based on the Fischer-Tropsch synthesis, which dates back to the
thirties. In the F.T process, the feedstock can be either solid (coal) or liquid (refinery
residuals) or gas and the hydrogen source can be the feedstock itself (methane) or water
opportunely introduced during the process. However, nowadays GTL mostly refers to gas
conversion which results in an extremely pure synthetic crude oil that is virtually free of
contaminants such as sulphur, aromatics and metals. This synthetic crude can be refined into
products such as diesel fuel, naphtha, wax and other liquid petroleum or specialty products.

New technology is being developed and applied in order to obtain a better efficiency in the
conversion process. The projects are scalable, allowing design optimization and application to
smaller gas deposits. The key influences on their competitiveness are the cost of capital,
operating costs of the plant, feedstock costs, scale and ability to achieve high utilization rates
in production. However, as a generalization, GTL is not competitive against conventional oil
production unless the gas has a low opportunity value and is not readily transported.

From a geographical point of view, the areas interested by GTL projects are those in which
gas constitutes a critical resource for economic development, such as the Far East (Indonesia
and Australia), the Persian Gulf (Iran and Qatar), Africa (Egypt and Nigeria), Latin America
(Trinidad and Venezuela), the North America (Alaska). The GTL projects are often
implemented in existing industrial sites (José in Venezuela and Point Lisas in Trinidad) or in
synergy with LNG plants (Shell in Indonesia and Egypt). This allows for a technology

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which, despite improvements, remains “capital intensive”, a containment of the investments
and cost optimization.

Fig 7. GTL Projects announced in 2000.

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Fig 8. Gas utilization alternatives.

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2.2 Key Drivers

The current environment for investment in GTL projects is more fertile than it has been for
the past 50 years. The reason is actually a confluence of factors that provide a number of
drivers from several directions. Some of the most important of these drivers are economic,
strategic, market and environmental, as follows:

1) Strategic Drivers
• gains access to abundant gas reserves;
• provides a means to monetize stranded and remote gas reserves;
• need to forge alliances with governments and energy companies in resource rich countries to
assure future supply;
• physical as well as environmental limits on the ability to re-inject associated gas to
stimulate oil production;
• a source of clean, synthetic crude oil to blend with heavier/dirtier crudes to gain benefits in
both transportation and refining;
• synthetic crude and fuels can be integrated easily into existing infrastructure.

2) Market Drivers
• global growth in demand for clean diesel fuel;
• markets for energy are remote from abundant, cheap sources of energy reserves, requiring a
transportable (liquid) form.

3) Environmental Drivers
• legislation mandating low sulphur, lighter, clean-burning fuels;
• inability to flare associated gas, requiring some way to dispose of gas to allow continued oil
production;
• the U.S. Energy Policy Act of 1992, which designates GTL from natural gas to be
considered an “alternative fuel.”

4) Economic Drivers
• crude oil price at historically high levels;
• peaking of oil production in many regions.

Although the technical, strategic and market drivers are important, the environmental drivers
are particularly critical, both from a compliance and public image point of view. Although the
strictest regulations originate in certain geographic regions, the protection of the environment
and the warding off of climate changes are global problems. Therefore, it is fair to assume
that energy production throughout the world (eventually) will be restricted by comparable
protective legislation.

Although a number of these drivers are not new, what is somewhat unique is the fact that they
all seem particularly critical at this point in history. Therefore, the circumstances are right for
GTL projects to finally begin to realize their long-promised potential.

2.2.1 Strategic and Market Drivers

A combination of a series of factors prompted the transformation in the environment of the

application of the GTL technology: i) the great increase in the gas reserves (especially
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associated) considered stranded by the conventionally utilized technologies (transport by gas
pipelines and the chain of liquefied natural gas– LNG), due to the increase in exploratory
efforts after the petroleum shocks of the 1970s; ii) the liberation of the natural gas and
electricity industries in the main world markets, with the greater volatility of gas prices,
making its sale by long term contracts difficult, and consequently, creating important
obstacles for the financing of great gas pipelines and LNG projects.

Monetizing stranded natural gas reserves - The world's proved and potential natural gas
reserves are estimated to be more than 14,000 trillion cubic feet (tcf). Most of these reserves
are considered stranded because they are too far from the consumers and difficult to transport.
A large part of the reserves are, in fact, located more than 5,000 km from the great centres of
consumption are not able to utilize traditional transport technologies, due to the risks
associated with such investments. GTL has the potential to convert a significant percentage of
this gas into several hundred billion barrels of liquid petroleum - enough to supply the world’s
energy needs for the next 25 years. Therefore GTL offers tremendous economic value to the
countries and companies that control these reserves as it permits the development of remote
natural gas discoveries that currently are not considered of any economic value.

Fig 9. Stranded Gas Components.

CIS & Europe – 2156 Tcf

N. America –252 Tcf

Middle East – 1980 Tcf

Asia & Australia – 445 Tcf

Africa– 418 Tcf

S. America – 250 Tcf

Fig 10. Stranded Gas Fields.

(1 Tcf of Natural Gas = 100 Million Barrels of GTL Fuels)

Increased of demand for flexibility - The technological trajectory of the transport of natural
gas by pipelines or via the LNG chain, characterized by the exploration of large-scale
economies, results in a great lack of flexibility in the interaction among the various articulated
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spaces. The gas pipelines, liquefying plants and methane-carrying ships represent specific
assets, once they are dedicated to specific economic transactions. Therefore, the economic
transactions can only occur among those spaces that are interconnected by that specific
network. Inflexibility is a synonym of high specificity of assets and of high transaction costs.
The great problem in confronting the utilization of the reserves via traditional means (gas
pipelines and LNG) is the difficulty of negotiating mechanisms of coordination to by-pass the
risks of business deals characterized by great interdependence among the actors. On the other
hand the liberalization of the energy markets, especially the gas and electricity markets, has
made the engagement of long term contracts difficult to achieve. The volatility of the prices
has increased the risks to buy or sell gas at pre-set prices, in addition to increasing the
probability of unpredictable contingencies. The technological trajectory of GTL represents a
radical departure from former movements. The production of GTL plants can be
commercialised in a global and extremely liquid market where the assets are no longer
specific as they can be dedicated to a large number of transactions. The product can be sold
by short-term contracts with a reduced interdependence between buyers and sellers.
GTL thus represents an appropriate response to the new context of the international market of
natural gas, which demands greater flexibility in contracts and less interdependence between
buyers and sellers.

2.2.2 Other Strategic and Market Drivers

There are a number of other reasons for using GTL technology to convert natural gas into
liquid products. Firstly GTL enables to create a much more efficient transportation system for
liquid products at ambient temperatures and pressures. The possibility of transporting a stable
liquid opens the doors to the utilization of the entire pre-existing infrastructure for the
transport of petroleum and petroleum products including the use of existing oil pipelines or
standard tankers and storage tanks. Also, GTL fuel can be burned in conventional diesel-
powered vehicles. Pumps and other fuelling infrastructure can be filled with GTL fuel without
significant retrofitting or capital investment while there is potential to optimize vehicle
engines to run even more efficiently on GTL fuel.

Other issues:

• The GTL process is very exothermic - that is, it generates excess heat. The process
therefore can be configured to produce electricity, steam or desalinated water if they are
desired locally.
• Associated gas (with oil production) in quantities too great to utilize at the site can be
converted in GTL.
• GTL enables to diversify market risks, converting natural gas into something other than
LNG.
• GTL can be used for “offshore” gas fields, when the pipeline solution is too expensive.
• GTL projects create jobs and other economic benefits for the host countries.
• It is quite possible that some of the GTL products (most likely diesel) may remain in the
local market. This can reduce imports and improve a country’s balance of trade.

2.2.3 Environmental Drivers

The pressure of environmental legislation constitutes one of the main factors that calls for the
development of GTL technology, especially due to two factors:
1. a growing number of restrictions on the flaring and venting of gas related to the
production of petroleum;
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 2. the increase in control of the emissions in the transport sector.

Eliminating costly and/or environmentally disadvantageous practices - As said before,

one of the incentives to continue to pursue an economical GTL process is due to the fact that
over 75% of the world’s known gas reserves are not currently accessible by pipeline, as they
exist in remote locations where gas pipelines cannot be economically justified.
Approximately 15.5 trillion cubic feet (tcf) of stranded gas is flared, vented or re-injected
each year. Some countries are concerned about the disposition of gas produced in
combination with crude oil (called associated-dissolved, or AD, gas). Production of oil from
certain fields may stop or at least decrease due to the lack of options for handling this gas.
Without local use or infrastructure to ship it to markets, AD gas often is flared or vented into
the air, releasing greenhouse gases such as methane and carbon monoxide. A GTL project can
use gas that would otherwise be vented or flared as a feedstock.

Fig 11. Gas flaring worldwide.

The restrictions on the burning of associated gas, by means of the application of fines or even
a higher tax base, is aiding the emergence of a great supply of gas at very low prices. This is
the case, for example, of the associated gas in Nigeria or in Angola, the non-utilization of
which represents a cost for the petroleum producer. This agent is willing to make its
utilization viable, even if the price received for the product does not totally remunerate the
investments made for such. Therefore, a niche of an important market for GTL projects
emerges, seeking to utilize reserves that have a negative cost of opportunity.

Creating environmentally-superior liquid fuels - The products produced by GTL plants

present important environmental advantages compared to traditional products, as they are
derived from a clean fuel: natural gas. GTL synthetic products are of the highest quality and
can be used directly as fuels or blended with lower quality crude oil derived fuels to bring
them up to compliance with increasingly stringent environmental and performance
specifications. GTL fuels used for transport should attract, in theory, a premium price as they
have been shown to reduce vehicle exhaust emissions. The extent of that premium should be
dependent on the outlook of environmental legislation in key markets.

Concerns about air pollutants caused by petroleum-based fuels have prompted government
involvement in formulation of stricter environmental regulations and providing tax incentives
to use alternative cleaner fuels. Pollutants of concern include nitrogen oxides (NOx), carbon
monoxide (CO), carbon dioxide (CO2), sulphur dioxide (SO2), volatile organic compounds
(VOCs), particulate matter (PM) and the formation of pollutants in the atmosphere by
photochemical reaction leading to the build-up of ozone in the lower layers of the atmosphere.

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The main drivers for tighter fuels quality specification are: fuels quality and environmental
legislation, reduced tail pipe emissions, reduced emissions for refineries and poor refinery
structure. The effectiveness of the enforcements of these policies is directly related to the
required investment and available technologies. Two approaches are generally employed to
reduce vehicle pollution:

1. altering standards of tail pipe emissions for new vehicles;

2. altering composition of the fuel.

The first approach is the most popular one but the drawback is that it is a long-term policy
that can only have effects when old vehicles are replaced by new ones. The second approach
involves altering the composition of fuel which has a more immediate impact on vehicle
emissions but represents an increase in cost for the traditional refineries which find
themselves in an increasingly more difficult situation where cleaner products have to be
produced with a worsening raw material (oils which are becoming heavier). This task is even
more difficult in a context of growing competition and tighter margins.

Fig 12. GTL-diesel environment performance.

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Nevertheless, it is not the long-term competition between refineries and GTL plants that
represents the most important incentive. It is the opening of niches in the short-term market.
The metropolitan diesel is a great market that is already available for future GTL producers.

2.2.4 Other Environmental Drivers

Protecting & extending resource availability - Fuelling vehicles with GTL fuel consumes
fewer petroleum resources per distance travelled than with conventional diesel. In other
words: one kilogram of GTL fuel takes a vehicle further than one kilogram of petroleum
based diesel. The combustion of less fuel for the same distance travelled can reduce negative
impacts on urban air quality. In addition, given forecasts of the rate of development of
stranded gas projects, GTL fuel production will continue after crude oil reserves are depleted
based on today’s assessment of the life span of crude oil reserves. This is because GTL
technology exploits remote gas reserves and not crude oil. Extrapolating from this point,
using remote gas to create GTL fuel will extend the lifetime of crude oil reserves accordingly.
However, producing GTL fuel currently requires more energy and resources per unit mass
produced than conventional diesel production. For both production of GTL fuel and across the
full life cycle, GTL requires fewer petroleum resources than conventional diesel production.

- Can be sold in existing markets

- Compatible with existing
infrastructure
- No sulfur or aromatics
- Performs better than conventional
diesel
- Valuable blending stock to meet new
guidelines

Greenhouse Gas performance goals - Production and use of GTL fuel can contribute less to
greenhouse gas to the atmosphere than production and use of conventional diesel fuel. A
study commissioned by Conoco-Shell-Chevron indicated the reduction in greenhouse gas
emissions is significant if the GTL fuel is produced from associated gas that is otherwise
flared in amounts of 10% or greater. More conservatively, and in cases where the feedstock is
from other sources, the greenhouse gas contribution of GTL fuels is comparable to
conventional diesel technology.
In an expanded GTL technology system, available natural gas is used for space heating and
electricity generation, whereas conventional refining technology uses more carbon intensive
light fuel oil and residual fuels respectively, to meet these needs. While the GHG emissions
from production and upstream processes of the GTL system are higher compared to the
refinery based system, the advantages in the use phase, at a minimum, compensate for the
disadvantages in those phases.

2.2.5 Economic Drivers

Competition in the GTL system is every intense. The products that are derived from the GTL
technology have an economic advantage: their transport cost is much less than that of the
transport of natural gas, which due to its volume, that is 1000 times more than the volume of
petroleum, not only presents high transport costs but also requires specific assets (gas
pipelines or methane ships).

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The key parameters which determine the economic viability of a GTL project are:
• gas price;
• oil price;
• capital cost (CAPEX) and operating costs (OPEX);
• product revenues;
• fiscal regime.

50

40
GTL Capital Cost, kUS$/b

30

20

Fig 13.
10
Economy of scale
0
and CAPEX.
0 50 100 150
Plant Capacity, kb

The most important factor is the availability of large gas reserves: 4-5 Tcf minimum to
provide 500-600 MMCFD (cubic feet day) supply for 25 years. Also, since GTL projects are
very capital intensive, low cost feedstock gas that is isolated from high priced gas markets is
required.
The uncertainty about world oil prices, rather than the technology, has served to limit GTL
investments. The recent rise in oil prices has favoured GTL research. Most operators say
economics favour GTL only when prices remain above $20/barrel average. That helps explain
why so many GTL proposals went on hold in the late 1990s. As a “rule of thumb”, GTL
operators expect to spend $20,000 for each barrel-per-day of plant production capacity. By
that measure, a 100,000 barrel-per-day GTL facility costs $2 billion.
Capital costs of GTL have been reduced by 60% in the last decade. The syngas step (see
chapter 4) accounts for 60% of the capital cost. Research to address this cost are:
- Direct conversion from methane to liquid hydrocarbon via catalytic oxidation;
- Catalysis improvements for indirect conversion;
- Plasma technology for conversion of natural gas into syngas before catalytic reaction;
- Ceramic membranes.
Economy of scale and technological innovation help reduced the capital expenditure
requirements. The final cost, however, is site-specific, depending on available infrastructure
and local manufacturing industry, and construction costs. At the moment the optimal size for
future plants is considered to be around 70-75,000 bbl/day.
Integration opportunities are also helpful. If a GTL project can be integrated with other
industrial facilities and share common infrastructure, the project is enhanced.

WHAT IS IMPORTANT FOR A GTL PROJECT

- Gas reserves of 4-4.5 TCF to sustain 500 MMCFD feed for 25 years;
- Gas price around $0.05/MMBTU (depending on gas quality);
- Rich gas feed;
- Integration opportunities with other industrial facilites- LNG, petrochemicals,
power plants, refineries etc..

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2.3 GTL Drawbacks

1) The exorbitant capital costs present a barrier to many who are interested in GTL. Huge
plants and huge gas reserves are necessary to create the economy of scale needed for a
venture to be economical. Only 200 of the 15,000 gas fields outside North America are big
enough to support a Fischer-Tropsch GTL plant Historically, GTL plants were subsidized by
governments.

2) With a required capital investment of hundred of millions of dollars for such plants,
controlling the technological risk becomes another major obstacle.

3) Oil prices have to be around the upper teens for GTL to be economically attractive for an
oil producer, rather than an "environmental" project to reduce flaring, whose economics are
somewhat different.

4) GTL technology brings together several processes on a large scale: these include gas
processing, industrial gas manufacturing, refining, power generation, and effluent treatment.
Investments in GTL technology are comparable to those for a new grassroots refinery. In
terms of cost and performance, therefore, considerable problems have surfaced that have
taken longer than expected to resolve.

5) GTL plant viewed as an abundant source of free energy is a myth. It is true that traditional
plants consume energy, whereas Fischer-Tropsch plants produce energy, but F.T plants also
consume very large quantities of energy for air separation. Studies suggest that, based on
current estimates, producing GTL fuel requires more energy than the conventional refinery
system and results in comparable GHG emissions.

6) Manufacture of clean fuels in refineries is another key competition for GTL. Many US, EU
and other refineries are in the process of installing, enlarging, or otherwise improving
hydrotreating and hydrocracking capabilities. Significant new technological improvements are
making refinery clean fuel conversion quite cost effective.

7) In any process-optimization exercise, the question of capital vs. operating costs will always
arise. For more common plants, such as refineries, gas plants, or LNG plants, the optimal
point is reasonably well understood. For GTL projects, however, obtaining an optimal point
comes with its own set of problems.

Summarizing, the most important drawbacks to GTL projects are the following:
- high capital cost;
- operating complexity;
- market risk: oil price, customer acceptance;
- environmental issues regarding GHG.

2.4 GTL against LNG?

The GTL process chemically converts natural gas (methane) molecules into other compounds.
Once converted, these liquids are stable and will remain in the liquid state. LNG, on the other
hand, is only a change of state – that is gaseous methane is cryogenically chilled and changed
into liquid methane at -260 °F. It is still methane and will return to the gaseous phase if
allowed to warm up to ambient conditions.

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GTL and LNG are similar in that the goal of both processes is to convert isolated natural gas
reserves into something that can be efficiently transported to market. They are also similar in
that both processes are very capital intensive, and must be done on a large scale to be
economical. In particular, due to the high level of investment, LNG is considered only for
large gas reserves located near the coast or on the continental shelf (offshore LNG)..

The market for GTL products is huge. The demand for middle distillates is about 35 million
barrels per day (35 MMBPD) and growing at approximately 4% per year. A large scale GTL
plant will only produce 50,000 to 100,000 BPD. This is only about 0.2 % of the total demand
and only 5% of the demand growth. On the other side, LNG produced is about 4% of the
worlds LNG demand. The market for GTL should easily absorb the products without
impacting the price. The additional 4% of LNG would certainly be high enough to impair the
price. Another way to compare the two products is that for the same market impact of one
LNG plant, you could build approximately 20 GTL plants.
Another advantage of GTL products over LNG is that the middle distillates are easy to
transport and store. Unlike LNG that requires cryogenically refrigerates tankers and storage
tanks, GTL products are low vapour pressure liquids that can be shipped, stored and
distributed easily, safely and at low cost using conventional equipment.

Will GTL ultimately eliminate LNG?

LNG-GTL COMPETITITON

Base of competitions regards:

- Type and dimension of the gas field;
- Distance from the markets and
logistics;
- Gas cost production;
- Time for implementation of projects;
- Level of development of technolo-gies
applied

Although we often discuss GTL and LNG as competitors, they really are not. Both are viable
processes to monetize isolated gas, but they serve different markets. In some site-specific
areas of the world, they may compete for the same feedstock gas, but generally there is so
much isolated, or stranded, gas in the world that there will be more than enough to go around.
For very large gas deposits, the two technologies can be applied on a complementary rather
than competitive development basis. Joint development of GTL and LNG projects would
allow for shared labor and infrastructure, reducing the costs to both projects and accelerating
the development phase. GTL based on LNG feedstock has a lower operating cost, or can be
produced at smaller scale to be competitive.

LNG has been around for may years, and, although it has been limited by market demand, it is
the industry standard. The GTL process has also been around for many years, but is just now
becoming economically viable. GTL and LNG will both be thriving and growing businesses
in the future.

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 3. INDUSTRY STATUS

3.1 GTL History

Catalysis for FTS were first developed in the early 1900s. Following the discovery by
Sebatier and Senderens in 1902 that CO could be hydrogenated over Co, Fe and Ni catalysts
to methane, in 1923 Fisher and Tropsch reported production of hydrocarbons aver alkalized
iron. They found that by using a catalyst under the right conditions of temperature and
pressure, a mixture of carbon monoxide and hydrogen – known as syngas – could be
converted into waxy paraffins.
Processes to convert natural gas to synthetic fuels and chemical feed stocks continued to
develop during the following seventy years. These developments were initially driven by
economic sanctions and embargoes, the work being carried out in countries that were unable
to meet internal market demand for fuel by importing and refining crude oil. The two key
players were Germany, starting in the 1920s, and South Africa from the 1950s onwards.
During World War II, coal based FT production played an important role providing the
transportation fuel requirements of the German war effort because of the insufficient access to
crude oil resources. This production was discontinued when the war ended. In addition, for
perceived security reasons and due to limited hard currency availability, work was undertaken
by the Russian military until 1989.
Only a few commercial scale GTL plants are currently in operation in the world, each started-
up in the 1990s. In fact, most, if not all, GTL plants to date would have not have been built if
it were not for governmental subsidies or political restrictions or influences. Anyhow, today
FT synthesis is considered and established technology and two companies have already
commercialized their FT technology: Shell (first plant in Malaysia) and Sasol (several plants
in South Africa), using natural gas and coal as feedstock to produce the syngas, respectively.

Fig 14. GTL history.

• 1922: Franz Fischer and Hans Tropsch use iron-based catalyst to convert an CO/H2 mixture to
mixture of HCs and oxygenated compounds.
• 1925: F&T use both iron and cobalt-based catalysts to synthesize HCs.
• WW II: chemistry contributes to Germany-Nazi’s war effort.
• 1950s-1990s: South Africa SASOL develops F-T commercially (in conjunction with coal
gasification) to convert coal to HCs—total capacity 4,000,000 MT/year in three plants.
• 1980s-present: Shell uses F-T to convert NG to fuels and waxes in Bintulu-Malaysia.
Recently Shell increased wax capacity to approx. 500,000 MT/year along with diesel,
gasoline, etc.
• 1980-present: a number of new entrants in the field (ExxonMobil, BP, Conoco), a number of
projects announced and planned (including demonstration projects), Qatar and Nigeria have
started design and construction of world scale GTL facilities.
19
3.2 GTL Products and Characteristics

GTL is a colourless, odourless, non-toxic, biodegradable product that significantly reduces

vehicle emissions while, at the same time, offering improved combustion. GTL not only adds
value, but it is capable of producing products that can be sold or blended into refinery stock as
superior products with less pollutants for which there is growing demand. GTL products are
premium quality and are highly desiderable in the marketplace.

FTS generally involves the synthesis of hydrocarbons and oxygenates from synthesis gas
(syngas) consisting primarily of a mixture of CO + H2. The types of hydrocarbons produced
include olefins such as ethylene and propylene, and an extremely wide range of saturated
hydrocarbons ranging from methane and ethane to long “straight chain” paraffinic waxes. The
oxygenated materials that are produced consist primarily of alcohols such as methanol and
ketones such as acetone. When configured to maximize the production of paraffinic
hydrocarbons, the resulting intermediate product mix is often described as “synthetic crude
oil” (syncrude). Such syncrude
can be readily refined into
desirable distillate fuel fractions
like kerosene, naphtha, and
heating oil using conventional
petroleum refining techniques.
The kerosene can be further
refined or blended into high
quality diesel or jet fuel products
while the naphtha can be further
refined into gasoline or used as a
thermal cracking feedstock for
olefins production.
Fig 15. Fisher Tropsch percentage production.

The most important market products are:

• Diesel: The diesel has no sulphur, high
cetane rating and low density. All of these
characteristics make it a premium fit with
the future diesel specifications.
• Naphtha: The naphtha has no sulphur and
is made up of straight-chain molecules
that are ideal for petrochemical crackers.
• Waxes: The heavy paraffins, or waxes,
have no sulphur and make ideal base
stock for premium lubricants and other
specialty products.
Fig 16. GTL products.

Fisher-Tropsch diesel (FTD) is a synthetic fuel produced from the conversion of natural gas
into a diesel fuel. Reflecting its origins as a gas, the new diesel fuel has an energy density
comparable to conventional diesel but with a higher cetane number permitting a superior
performance engine design. Low sulfur content leads to significant reductions in particulate
matter that is generated during combustion, and the low aromatic content reduces the toxicity
of the particulate matter.

20
From a production point of view, the environmental impacts are the same as those for diesel
fuel, with the benefit of lower air pollutant emissions and increased resource security through
a lowered dependence on imported oil. A FTD plant does not produce undesirable co-
products, unlike a refinery which produces heavy fuel oil and coke.

ADVANTAGES of FT diesel DISADVANTAGES of FT diesel

FT diesel contains virtually no sulphur or aromatics.
In a proper tuned engine this is expected to lead to Diesel exhaust is treated by EU EPA as an air toxic
lower particle exhaust emissions.

The absence of sulphur means that oxidation Because of the extra processing energy, FT diesel
catalysts and particulate traps will operate at produces more embodied greenhouse gases than any of
maximum efficiency. the conventional or alternative fuels.

The existing diesel infrastructure can be used,

unchanged, for the Fischer Tropsch Diesel.

Diesel is one of the safest of the automotive fuels.

A FT plant does not produce any of the less
desirable co-products from a refinery, such as
heavy fuel oil or coke.

Provided an FT plant uses an oxygen feed, it

produces a pure CO2 stream that provides an
option for the collection and sequestration of CO2

If other solutions make the production of ultra-clean fuels viable, the GTL technologies will
directly compete with refineries. In this case, a considerable reduction in the cost of
production would be demanded so that the plants become competitive, and thus give priority
to scale economies.

Another option, also mentioned, refers to the markets of chemical specialities. These offer
much higher prices than those of the fuels, but demand small volumes of products, limited to
niches of applications. The dilemma of the lines of products is less restrictive than the
previous ones, although they are related to them, especially the question of the scale of
production.

Fig 17. Diesel demand worldwide (2003).

21
 Fig 18.

A) Gas products;
B) Comparison between GTL
crude and oil crude;
A C) GTL as blending component.

C
B
22
3.3 GTL Actors

The scale of a GTL plants currently represents an important dimension for strategic
positioning in the gas market. On the one hand, some actors are positioning themselves in
search of greater scale, part of the natural trajectory of chemical processes industries, aiming
to reduce the cost of production and increase profitability on the large investments demanded.
The large petroleum companies which possess great reserves of stranded natural gas (for
example, Shell and ExxonMobil) are the most interested in large-scale plants. On the other
hand, some companies seek efficient plants on a smaller scale (fewer than 10,000 barrels per
day), capable of exploring a large number of small stranded natural gas fields. The barge-
mounted plants proposed by Syntroleum expressively represent the concept of small scale
(from 2000 to 10,000 bpd), whereas the petroleum companies’ projects, which would produce
about 80,000 or more bpd, give priority to the reduction of cost as well as the competitiveness
of the GTL technologies compared to the established technologies of natural gas exploration.

The main operators are Shell, ExxonMobil, Syntroleum and Sasol. These four companies
synthesize well the strategic diversity in the competition for positions in the future of GTL
technologies.
Shell has conducted research and development activities in GTL technologies since the end of
the 1940s, which led to the development of the Shell Middle Distillate Synthesis (SMDS)
focused on the production of average distillates, mainly kerosene and gasoil. Shell, one of the
pioneers is the industry in its renaissance phase, has operated a plant producing 12,000 bpd in
Bintulu, Malaysia since 1993. The plant is characterized by its great flexibility as to the
products which vary among naphtha, diesel oil, kerosene, solvents, refined greases and raw
material for detergents.
ExxonMobil has recently announced the development of a second generation of its process
known as Advanced Gas Conversion (AGC-21) which employs a slurry reactor and a cobalt
catalyst. The strategy of the ExxonMobil developments focuses on incremental improvements
in the generation of synthetic gas and in the Fischer Tropsch reaction system.
Syntroleum is a technology company, which was founded in 1984, became publicly traded in
1998, and acts in the energy industry. It possesses a process of natural gas conversion into
liquid hydrocarbons commercially available since 1997. The main characteristic of this
process is the employment of air in place of oxygen in the preparation of synthetic gas, which
eliminates the significant capital cost of the plant separating the air. The research and
development strategies seem to be mainly focused on the perfection of the process and the
reduction of the capital and operational costs. In addition to widely offering licenses to the
petroleum and gas industry, Syntroleum also has as its goal the establishment of joint ventures
to build and operate their own plants for the production of specialties or Diesel oil.
Syntroleum thus seeks to transform itself from the role of licenser to producer. It has currently
proposed several projects of the joint-venture type to petroleum companies that possess
stranded gas reserves in Latin America (PDVSA in Venezuela, Petrobras in Brazil, Enap in
Chile and consortiums in Peru). The company seeks to make some GTL plants viable with a
stake in the capital invested in these projects, thus demonstrating that its technology can be
commercialised.
Sasol is the only one with effective operational experience in Fischer Tropsch plants, which
the company has maintained in South Africa producing liquid hydrocarbons from coal since
the 1950s. The renaissance in the GTL technologies represents an opportunity to employ its
accumulated knowledge. The company considers the leverage of its technology in the Fischer
Tropsch conversion one of the five fundamental drivers of its growth. It has considered
several GTL plant projects, one of which is in association with Chevron. In addition to
announced associations with petroleum companies, Sasol has also sought to strengthen its

23
position in technology, as is the case of the association with the Norwegian company
specialized in technologies for the production of synthetic gas (Haldor Topsoe).

It should also be mentioned that, besides several petroleum companies, such as BP, Conoco
and Statoil that have announced GTL initiatives, there is also the presence of gas industries,
especially Praxair and Air Products. These companies are leading two consortiums involving
a petroleum companies and companies specialized in specific fields of knowledge for research
and development projects in the reform by catalytic membrane. In this case, the industrial
gases companies are attempting to mobilize their technological specialties to seek a radical
innovation in the processes of synthetic gas production.

3.4 Current Status of GTL Projects and Future Outlook

A technology that is potentially able to change the strategies of the greatest oil companies can
be seen by some actors more as a threat that an opportunity. This certainly influences the
penetration speed of the FT technology and of the relative products. In recent years,
companies have spent billions of dollars in research and development. For example,
companies are planning to spend billions of dollars in the next few years to construct mega-
scale GTL plants at the world’s largest gas fields in Qatar. Several other projects have also
been announced by various partnerships in locals such as Nigeria, Malaysia and the Middle
East.
Due to its potential, the innovation efforts carried out by research institutes, universities and
mainly by the companies themselves are concentrated in the search for the reduction of capital
costs for the implementation of processing plants that permit an improved economic viability.
However, the cost and economics will likely keep most such GTL projects in the planning
stages longer. Probably just a few of them will actually be constructed in the near term.
A wider diffusion of the FT technology can mainly be accelerated by 2 factors:

1. the capacity to reduce the cost of realization and implementation of GTL plants;
2. the ability of the industry to “sell” to the political interlocutors the environmental
benefits derived from the use of the GTL products.

Presently only three GTL facilities have operated to produce synthetic petroleum liquids at
more than a demonstration level: the Mossgas Plant (South Africa), with output capacity of
23,000 barrels per day, Shell Bintulu (Malaysia) at 20,000 barrels per day and the subsidized
methanol to gasoline project in New Zealand.

Conoco-Phillips has constructed a 400 BPD demonstration unit in Ponca City, Oklahoma
which was commissioned in mid 2003 and is considering a commercial scale GTL plant with
Qatar Petroleum (QP).
BP has recently started a 300 BPD demonstration unit in Nikiski Alaska.

24
Shell operates a commercial plant, 150,000 barrel per day (BPD) facility, in Bintulu,
Malaysia and has recently signed an agreement with QP for a giant GTL integrated complex
of 140,000 BPD capacity.
Sasol is constructing jointly with QP a 34,000 BPD capacity GTL plant in Ras Laffan ,
Qatar. It has also formed a Fischer-Tropsch technology alliance with Statoil in Norway to
evaluate the economic conversion of associated gas into synthetic crude oil at the point of
production obviating the need to flare or re-inject associated gas. It is developing barge-
mounted gas-to-oil plants that can be floated into place over small natural gas deposits.
Expansions of the plant to 100,000 BPD is being evaluated by QP and Sasol-Chevron.
Exxon-Mobil is running a 200 BPD demonstration unit in Baton Rouge (Louisiana) and is
considering jointly wit QP a commercial scale project possibly with capacity of 100,000 BPD.
Marathon Oil jointly with Syntroleum is constructing a 100 BPD demonstration unit in
Catoosa, Tulsa (Oklahoma). Marathon is also considering a world scale GTL project with QP.

While current world output of liquids form GTL plants is quite small, some projections
indicate that GTL production could climb to 1-2 million BPD by 2015. It is believed that
future GTL projects will be developed three main ways:

1. construction of medium and large plants in remote regions where there are few gas
customers and transportation cost are high;
2. small GTL plants on platforms, barges or special vessels for offshore fields where gas
transportation is complex and flairing is prohibited;
3. semi-mobile or modular GTL units that can be moved from one small gas fields to
another onshore.

Fig 19. Planned GTL projects.

Use of GTL for chemicals and energy production is forecast to advance rapidly with
increasing pressure on the energy industry from governments, environmental organizations
and the public to reduce pollution, including the gaseous and particulate emissions
traditionally associated with conventional petroleum-fuelled and diesel-fuelled vehicles. In
response there are initiatives worldwide to promote the use of unleaded petroleum in
conjunction with a catalytic converter or, alternatively, the use of reformulated cleaner diesel.
It is also clear that the commercial success of GTL technology has not yet been fully
established. Returns from GTL projects will depend on projections of market prices for
petroleum products and presumed price premiums for the environmental advantages of GTL-
produced fuels. Unit production costs will reflect the cost of the feedstock gas; the capital cost
25
of the plants; marketability of by-products such as heat, water, and other chemicals (e.g.,
excess hydrogen, nitrogen, or carbon dioxide); the availability of infrastructure and the quality
of the local workforce.

Existing Plants

Pilot/Demo Units EXISTING PLANTS

Commercial Plants
Arco/Syntroleum Axens/Agip
70 b/d Pilot Plant Pilot Plant (10 b/d) Rentech/Donyi
BP/Kvaerner “Synhytec”
300 b/d 300 b/d
Demo Plant

Syntroleum/Marathon/
Japan Petr. & Exp./
DOE
Cosmo Oil/Chiyoda
70 b/d Demo Plant 10 b/d Pilot

Shell
Sasol/QP 14,700 b/d
Conoco 34,000 b/d SMDS Plant
400 b/d Demo Plant Under from gas
Construction

Exxon (AGC-21)
Mossgas
200 b/d Demo Plant
Sasol I, II, III 23,000 b/d
Mossgas/Statoil
160,000 b/d from gas
F-T Demo Plant
from coal 1,000 b/d

Prospective Initiatives/Plants

Exxon Mobil
EGPC/Shell CPC/QP
100,000 b/d
GAZPROM/YUKOS/ 75,000 b/d 2x80,000 b/d
Qatar Project
Syntroleum Pre-Feed
Study for 12 x 10,000 b/d Shell/QP
2 x 70,000 b/d
HoA - Pre-Feed

Shell/NPC
Sasol/ 75,000 b/d
PETROTRIN MOU for JV
30,000 b/d
PDVSA/Sasol
34,000 b/d
Shell/Pertamina
Reema Int./ 75,000 b/d
Syntroleum
10,000 b/d
STATOIL/NIOC
73,000 b/d
Syntroleum/ Sasol/QP
Pre-Feed
PetroBras revamping to 65,000
Amazon Project b/d of ORYX
+130,000 b/d - LoI
Bolivia GTL/ SasolChevron/NNPC
Renrech 34,000 b/d Sasol/Chevron
10,000 b/d Pre-Feed Feed completed MARATHON/QP
34,000 b/d 100,000 b/d
EPC bidding
LoI

26
 4. GAS TO LIQUIDS (GTL) CONVERSION

4.1 Products

The processes currently available for commercial application are based on catalytic
conversion, utilising advanced versions of the basic industrial technology originally
developed by Franz Fischer and Hans Tropsch in 1923. Possible products are:

• Methanol;
• Dimethyl Ether (being considered in some countries as an alternative fuel);
• Low Sulphure Gasoline and Diesel.

The specific details of the process selected depends on the primary product required, but they
all have a number of features in common, like a high cetane number and the absence of
aromatics and sulphur.
Methanol is used in the synthesis of chemicals, particularly formaldehyde, and methyl tertiary
butyl ether (MTBE), which is used as a high octane gasoline blending component.
The dimethyl Ether (DME) introduces characteristics that make it attractive: cetane number is
very elevated (around 76) and oxygen around 35%.The approach follows two fundamental
paths:

• from natural gas to medium distillates like Diesel (Fischer-Tropsch);

• from, natural gas to oxygenated compounds (Methanol; Dimethyl Ether – DME or
Dimethoxymethane – DMM; Methanol to Olefins – MTO; Methanol to Gasoline –
MTG).

The process Gas to Liquids (GTL) to Diesel from Fischer Tropsch (FT), for example, is
proper to the first path. It generally gives jet-fuel and diesel with a 50% yield, whose
properties are initially very scarce and they need a further process as the hydrocracking
(HCK) of the products from FT. You can get this way middle distillates that haven’t sulphur
and aromatics and they show good properties, among which a cetane number higher to that
required by the specifications (for example, for the diesel one produced by Shell in Malesia,
the cetane number is equal to 75 against 51, least value of the specifications of diesel quality
in Europe). Such gas-oil results in reduced emissions of CO, HC and particulate. A gas-oil of
similar quality can be obtained by the dry fraction of the natural gas and also from humid (C3-
27
C4), by dehydrogenation of paraffins to olefins and oligomerizzation of these to obtain gas-
oils with cetane numbers up to 55, as recently identified by Snamprogetti and EniTecnologie.
Regarding the second path it refers to processes that involve the transformation of natural gas
in oxygenated compounds for diesel (like olygomers derived by methanol and dimethylether).
It is an attractive path because an increase of the content of oxygen in the combustion room
decreases the risk to produce particulate.
Both the approaches involve an intermediary stage that results in the formation of a synthetic
gas (Syngas) originating from natural gas.
Syngas is a versatile building block in the chemical industry. The total global annual use of
fossilderived syngas is approximately 5800 PJth, which corresponds to 2% of the total
primary energy consumption. The largest part of the syngas is used for the synthesis of
ammonia for fertiliser production (~55%), the second largest share is the amount of hydrogen
from syngas consumed in oil refining processes (~24%), and smaller amounts are used for
methanol production (12%). The two large Fischer-Tropsch processes mentioned annually
consume 484 PJth of syngas, which corresponds to approximately 8% of the total amount.
Most syngas is produced by partial oxidation of natural gas (84%); the rest is produced by
gasification of coal, while some additional small amounts are generated in refinery processes.
Another GTL process, very different from the current technologies, is the direct conversion
of the gas (without the passage through the synthesis gas), but it is still in the research phase.

4.2 The Gas-to-Liquids process

All of the processes use the following steps. The production and conversion steps are those
that use catalysts in order to start and maintain the chemical reactions.

Steam
Generation

Feed Syngas Syngas Primary

PreTreatment Production Conversion Product

Air or Oxigen

The needs for steam, air or oxygen depend on the specific process details. However, the
common principles are that natural gas is first cleaned and then broken down by a process
known generally as Reforming to produce a synthetic gas or “syngas”. This is then converted
to the primary liquid product.

The primary raw product may also require some further treatment and upgrading.

28
4.2.1 Feed Pre-Treatment

Natural gas, when first produced, is a complex mixture. Although it primarily consists of
hydrocarbons, there are other gases present, such as nitrogen, carbon dioxide, hydrogen
sulphide and helium, as well as water vapour. Whilst some of these are removed in oil and gas
production facilities, the gas arriving at a conversion plant may require further cleaning before
it can be converted. The main components that need to be removed are those containing
sulphur, since these can poison the catalysts used. The others can be handled by the
conversion processes.

Two different types of pre-treatment are used, depending on the amount of gas to be treated:

• For smaller volumes, the gas is cleaned using either liquid or solid scavengers. These
are either injected into the gas (liquid scavengers) or the gas passes through a vessel
containing them (liquid or solid scavengers). The used scavengers are then collected
and removed. Capital costs are low, but operating costs are relatively high, since the
scavengers cannot easily be recycled and must be supplied continuosly.

• For larger volumes, amine wash systems are used. The gas flows up through a column
fitted with a set of trays and overflow weirs. The liquid amine flows downwards,
collecting on each plate and then overflowing downwards through the column. The
gas bubbles through the liquid on the trays, ensuring good contact, and the sulphur
compounds dissolve in the liquid.

Once the liquid reaches the bottom of the column, it is removed and then sent to a recovery
system where it is recycled to remove the impurities. It can then be sent back to the top of the
column. The advantage of the systems is that it runs in a continuous loop and the amine liquid
does not need to be replaced.
Its operating costs are therefore low, but significant capital investment is needed initially in
both the column and the amine regeneration system.

4.2.2 Syngas Production

The Reforming process by which syngas is produced is a chemical reaction in which

hydrocarbon molecules in the natural gas are broken down and stripped of their hydrogen
atoms. Oxygen, introduced either through steam, as air or as a pure gas, is substituted,
producing a mixture of carbon monoxide and hydrogen. Both catalytic and non-catalytic
processes have been developed.
There are three basic types of reformer and all industrial plants use either variants or
combinations of these. They are the steam-methane reformer, the autothermal reformer and
the partial oxidation reactor.

Steam-Methane Reformer

In steam-methane reforming, natural gas and steam are passed over a catalyst, typically
nickel, contained in tubes located in a firebox. Heat for the reaction is supplied by burning
some of the feedstock gas. It is the most widely used technology for syngas production, being
used in the bulk chemicals industry for the manufacture of methanol and other chemicals. In
combination with a secondary stage, it is also used to manufacture ammonia. It does not
require a separate air or oxygen supply, although steam must be supplied. However, the
composition of the syngas produced is not ideally suited to producing liquid fuels.
Steam methane reforming occurs through endothermic reactions (1):
29
CH 4 + H 2 O → CO + 3H 2
(1)
CH 4 + 2 H 2 O → CO2 + 4 H 2

The presence of the CO2 produced in the second reaction of steam reforming causes the
secondary reaction of reforming (2):

CH 4 + CO2 → 2CO + 2 H 2 (2)

Before the reformer it takes a hydrocarbons pretreatment to remove sulphur, poisonous for the
nickel catalysts. In the natural gas reforming this process occurs through the adsorption on
zinc oxides’ beds or on active carbons; the liquid hydrocarbons, instead, pass through a
hydrodesulphuration. In a commercial view the vapour/carbon ratio is beetween 2 and 3.
Higher stechiometric values of vapour bring to higher conversion rates, minimizing the risks
of fuel’s thermic cracking and the formation of coke.
Thanks to the high temperatures of the process, you have an high quantity of heat in the hot
gas at the exit of the reformer and in the combustion gases. This quantity can be utilizated for
the preheating of raw materials and for the vapour needed in the reformer. Other heat remains
available to preheat the combustion air and the generation of vapour for other uses.
The syngas at the exit from catalytic reformer has a hydrogen-carbon monoxide of 3:1. This
goes down to 2:1 for materials with less hydorgen, like the light naphtas.

Autothermal Reformer

In a normal autothermal reactor, the gas is burned with oxygen and steam and then passed
through a bed of nickel, located in the same vessel. The combustion reaction is very fast and
produces very high temperatures. It produces syngas suitable for most conversion processes.
However, the requirements for an oxygen feed means that an air separation plant is needed.

Air-blown reactors, which utilise air rather than oxygen, have also been developed and these
avoid the need for the air separation plant. However, they produce a nitrogen-diluted syngas
that requires special processing for conversion, as well as meaning that the equipment has to
be larger.

Partial Oxidation Reactor

The partial oxidation process is simply a direct reaction between oxygen and the hydrocarbon
gas. It uses no steam and requires no catalyst. It operates at very high temperatures, making it
very efficient, but oxygen is required.

The partial oxidation reaction (3) is exothermic:

1
CH 4 + O2 → CO + 2 H 2 (3)
2
Part of the carbon monoxide and of the hydrogen produced has a combustion reaction (4):
1
CO + O2 → CO2
2 (4)
1
H 2 + O2 → H 2 O
2
The carbonic anhydride causes the above described reforming reaction with dioxide.
The POX reactors (Partial Oxidation) are more compact than the steam reformers, because
they don’t have the heat exchanger. Their efficiencies are relatively high (70-80%).

30
The efficiencies of the whole system is however worse because of the higher-levels of
temperature and the worse heat recovery.

4.2.3 Syngas Conversion

Once syngas has been produced, the next step is to convert the carbon monoxide and
hydrogen into the required product. All of the current processes commercially available are
based on Fischer-Tropsch catalytic conversion. The product generally depends on the catalyst
used, the reactor type and the operating conditions. Typical catalysts used include iron and
cobalt. Nickel has also been investigated.

The reaction proceeds through growth of chains of hydrocarbons. If the chain growth is
limited, then lighter hydrocarbons will predominate. However, if chain growth is high, then
heavier, waxier hydrocarbons will be formed. Typically, chain growth is related to the
reaction time.

Iron was one of the first catalysts used. It produces lower-molecular weight hydrocarbons.
Cobalt is more expensive and has to be supported on an inert material such as allumina or
silica. It produces higher-molecular weight products that require less eventual upgrading.
The reactors used for this conversion step include the autothermal reactor described
previously, the tubolar fixed-bed reactor, the slurry-bubble reactor and the fluidised bed
reactor.

Tubular Fixed-Bed Reactor (Argo-type Reactor)

The tubular fixed-bed reactor, also known as an Arge-type reactor, uses a catalyst
packed in vertical tubes. The syngas flows downwards through the tubes. Heat is
removed through the tube walls to produce steam. Temperature control is critical
since a high temperature gives good conversion, but a too high one poisons the
catalyst.

Slurry-Bubble Reactor

The slurry-bubble reactor contains a slurry of liquid wax with catalyst dispersed
through it. The syngas is bubbled through this mixture where it is converted. Heat
is recovered from the slurry via cooling coils, which generate steam. The slurry is
well mixed, which means that the reactor operates at approximately constant
temperature throughout. This allows higher average operating temperatures and
reaction rates and the process is easier to control.

Fluidised Bed Reactor

The fluidised bed reactor is similar to a slurry-bubble reactor except that it

contains no liquid. The gas is blown up through the solid catalyst particles,
causing them to lift and separate, improving mixing. Once this has happened to
all of the particles, they are said to be fluidised. Again, the operating temperature
is nearly constant and the process is readily controlled. In this case, liquids do not
need to be removed from the raw product stream.

On leaving all of these reactors, the light hydrocarbon products, together with
unconverted gas, are sent to a condenser. The heavy products are then removed,
along with any solid catalyst that was carried over. The unconverted gas is
31
recycled back to the reactor inlet, leaving the primary product.

4.2.4 Fischer-Tropsch Synthesis

The Fischer-Tropsch (FT) synthesis was discovered in 1923 by the German scientists F.
Fischer and H. Tropsch at the Kaiser Wilhelm Institute for Coal Research in Mülheim,
Germany. In the synthesis hydrocarbons are produced from syngas. Historically, Fischer-
Tropsch processes have been operated on large industrial scale to product synthetic fuels as
alternative for non-available fossil fuels (i.e. in Germany in the 1930s and 1940s and in South
Africa during the oil boycott). To date, the FT process receives much attention because the
hydrocarbon products are “ultra-clean” due to the nature of the synthesis process, i.e. they are
essentially free of sulphur or aromatics. In Thailand and Greece Shell GTL blended with
fossil diesel is available to reduce local soot and SO2 emissions.

Chemistry

• Synthesis

In the catalytic FT synthesis one mole of CO reacts with two moles of H2 to form mainly
parafin straight-chain hydrocarbons (CxH2x) with minor amounts of branched and
unsaturated hydrocarbons (i.e. 2-methyl paraffins and -olefins), and primary alcohols.
Typical operation conditions for FT synthesis are temperatures of 200-250°C and pressures
between 25 and 60 bar. In the exothermic FT reaction about 20% of the chemical energy is
released as heat (5):

CO + 2 H 2 ⇒ −(CH 2 ) − + H 2 O (5)

• Catalyst

Several types of catalysts can be used for the Fischer-Tropsch synthesis - the most important
are based on iron (Fe) or cobalt (Co). Cobalt catalysts have the advantage of a higher
conversion rate and a longer life (over five years). The Co catalysts are in general more
reactive for hydrogenation and produce therefore less unsaturated hydrocarbons (olefins) and
alcohols compared to iron catalysts. Iron catalysts have a higher tolerance for sulphur, are
cheaper, and produce more olefin products and alcohols. The lifetime of the Fe catalysts is
short and in commercial installations generally limited to eight weeks.
As follows from equation (5), the FT reaction consumes hydrogen and carbon monoxide in a
molar ratio of H2/CO = 2. When the ratio in the feed gas is lower, it can be adjusted with the
water-gas shift (WGS) reaction (6):

CO + H 2 O ⇔ CO2 + H 2 (6)

Iron-based FT catalysts show considerable WGS activity and the H2/CO ratio is adjusted in
the synthesis reactor. In the case of cobalt-based catalysts the ratio needs to be adjusted prior
to FT synthesis.

• Product distribution

The polymerisation-like Fischer-Tropsch chain-growth reaction results in a range of products,

comprising light hydrocarbons (C1 and C2), LPG (C3-C4), naphtha (C5-C11), diesel (C12-
32
C20), and wax (>C20) fractions. The theoretical chain length distribution can be described by
means of the Anderson-Schulz-Flory (ASF) equation, which is represented as:

Wn (1 − α ) 2
log = n ⋅ log α + log
n α

where Wn is the weight fraction of a product consisting of n carbon atoms and α the chain
growth probability factor. Higher α values give more high molecular weight products as can
be seen in Figure below. The value of α is characteristic of the particular catalyst employed in
the Fischer-Tropsch process and, depending on the needs of a particular production process,
catalysts and process operation conditions can be tailored towards the production of
predominantly low or higher molecular weight hydrocarbons.

In practice, there is often a deviation from the ideal ASF distribution especially with regards
to the lower hydrocarbon yields. C1 yields are usually higher than predicted, whereas C2 (as
well as C3 and C4) yields are lower. To incorporate the deviation from the ideal ASF
distribution with regard to the yields of the C1-C4 hydrocarbon, as “rule-of-thumb” these
values can be recalculated according to equations (7) and (8).

1 ⎛ ∞
⎞
W1 = × ⎜1 − ∑ Wi ⎟
2 ⎝ 5 ⎠ (7)
1 ⎛ ∞
⎞
W 2 , 3, 4 = × ⎜1 − ∑ Wi ⎟ (8)
6 ⎝ 5 ⎠

• Green diesel yield

With respect to the production of green diesel, process conditions can be selected to produce
maximum amounts of products in the diesel-range. However, the diesel yield is in that case
limited to approximately 30 wt%, as can be seen in Figure below. A much higher yield of
diesel can be achieved when the FT synthesis is optimised towards production of wax. The
wax can be selectively hydrocracked to yield predominantly diesel. For this hydrocracking
additional hydrogen is required, which can be produced from a syngas side-stream that is
completely shifted to hydrogen via the WGS reaction (6). The maximum amount of liquid
products (“fuels”) that can be produced from a (cleaned and properly conditioned) syngas is
approximately 71% (overall syngas-to-fuel energy efficiency; ηG-t-F), as follows from:

33
The syngas (ηCO+H2) conversion in the Fischer-Tropsch synthesis reactor is 95%. Only 80%
of the energy in the gas is retained in the paraffin FT product (ηFT); the remainder is released
as reaction heat. The selectivity of the FT process to C5+ products (liquid and wax) is 95%
(ηC5+), the other 5% are gaseous C1-C4 products. The heavier FT products can be
selectively converted into fuels in the hydrocracking step with 98% efficiency (ηhydro). The
energy contained in the FT off-gas (i.e. unconverted syngas and C1-C4 products) can be used
to generate electricity.

• Feed gas specifications

The catalysts used in FT synthesis are intrinsically very sensitive to small amounts of
impurities. In commercial operation, catalysts are replaced or regenerated after a certain
operational period. The definition of the gas cleaning is therefore based on economic
considerations: investment in gas cleaning versus accepting decreasing production due to
poisoning of the catalyst. Therefore, there are no ‘hard’ data on maximum levels for
impurities in FT feed gas. For each plant the acceptable levels may be different. Rule-of-
thumb specifications are presented in Table below for known impurities.

A maximum value of less than 1 ppmV is defined for both the sum of the nitrogen-containing
and sulphur-containing compounds. For the halides and alkaline metals a lower level of less
than 10 ppbV is assumed. With respect to the organic constituents that are present in biomass
product gases (i.e. tars and BTX), tars in general, there are no limits regarding poisoning of
the catalyst. However, as the gas needs to be compressed to 25-60 bar for FT synthesis, the
concentration of the organic compounds must be below the dew point at FT pressure to
prevent condensation and fouling in the system. Specifically, class 2 tars with S or N hetero
atoms (e.g. thiophene and pyridine) need to be removed below ppmV level, as they are
intrinsically poisonous for the catalyst. Solids must be removed essentially completely, as
they foul the system and may obstruct fixed-bed reactors.
With respect to the other possible constituents (depending on the gasification concept) of the
FT feed, i.e. CO2, N2, CH4, and larger hydrocarbons, there are no ‘hard’ specifications.
However, similar to the gas cleaning, specifications are set by economic considerations. For
the concentration of these gases, which are inert in the FT synthesis, a ‘soft’ maximum of 15
vol% is defined (but the lower, the better). The presence of inerts requires larger reactors and
higher total gas pressures. CO2 can readily be removed with standard techniques, but N2 and
the lightend hydrocarbons cannot be removed at reasonable costs. Therefore, in the
production of the FT feed gas the presence of significant concentrations of the latter
compounds should be avoided.

34
Commercial processes

• Fischer-Tropsch synthesis

Today, Fischer-Tropsch synthesis is an established technology and two companies have

already commercialised their FT technology, i.e. Shell (first plant in Malaysia) and Sasol
(several plants in South Africa), using natural gas and coal as feedstock to produce the syngas,
respectively. Sasol uses iron catalysts and operates several types of reactors, of which the
slurry bubble column reactor is the most versatile (i.e. applied in the Sasol Slurry Phase
Distillate; SSPD). Shell operates the SMDS (Shell Middle Distillate Synthesis) process in
Bintulu, Malaysia, which produces heavy waxes with a cobalt-based catalyst in multi-tubular
fixed bed reactors. In 2003 Shell has started the engineering for a 75,000 bbpd SMDS plant in
Qatar, while Sasol has a 30,000 bbpd cobalt-based SSPD plant under construction in Qatar.

• Syngas cleaning

The cleaning of the raw syngas from partial oxidation is a well-known and commercially
available process. The general approach is to quench the raw hot gas with water to cool the
gas and removed solid particles (dust, soot, and ash) and the volatile alkaline metals. Upon
syngas production, H2S, NH3, COS (and CS2), and HCN are formed from sulphur and
nitrogen in the fuel. The NH3 is removed downstream together with the halides (viz. HCl,
HBr, and HF) with a water washer and H2S is removed either by absorption or after
conversion to elementary sulphur (i.e. the Claus process) - the adsorption removal is preferred
(cheaper) when relatively small amounts of H2S are present. Similar is valid for the presence
of COS and HCN. These impurities are hardly removed in the gas cleaning and are captured
in the guard beds. When a syngas contains higher loads of these compounds, it is
economically more attractive to install a hydrolysis step to convert the compounds to H2S and
NH3, respectively, that are readily removed in the gas cleaning. With this cleaning process the
syngas specifications are met.

4.3 Oxygenate Processes

While the Fischer-Tropsch process produces synthetic crude, which is then refined into
synthetic oil products, oxygenate processes, using a natural gas feedstock, produce methanol,
DME or DMM.

35
4.3.1 Methanol Process

Technology for natural gas conversion into methanol has long been known, but few planners
would consider this option commercially viable for the development of lonely gas. The world
market is already suffering from a supply overhang that is likely to worsen as the U.S. and
other countries begin to phase out of gasoline octane additive MTBE, a major market for
methanol output.
The first step in the production of methanol from methane is syngas production by one of the
reforming processes described earlier. The majority of current methanol capacity worldwide
is based on conventional steam-methane reforming but other syngas processes are also in
industrial use, such as two-step combined processes using oxygen-blown secondary reforming
in combination with conventional steam-methane reforming. One example is the ICI Latest
Concept Methanol process.
The industry was revolutionised in the 1970s by the introduction of the ICI Low Pressure
Process utilising a cooper-based catalyst. The original reactors were developed from ammonia
converters and these are the most widely used types of methanol synthesis reactor today. They
are, however, relatively complicated.
There have therefore been incentives to develop other converter designs and several
alternatives have successfully entered industrial service. A liquid phase process, known as
LPM, with catalyst suspended in a non-volatile mineral oil, is also under development.
Dymethil ether can be produced in a one-step liquid phase reactor similar to the LPM system.

Methanol production processes are currently available under license from a number of
companies, most notably ICI, whose Synetix division provides the catalysts, Davy and Lurgi.
Others include Haldor Topsoe, MW Kellogg, Mitsubishi and Raytheon.

• ICI

The ICI process uses a reactor consisting of multiple catalyst beds contained within one
vessel- Cold synthesis gas is injected upstream of each bed to limit the temperature rise. Gas
recycle is used to control the reaction, as well as to improve overall conversion efficiency.

• Davy

Davy has developed an improved low pressure methanol process. Launched at the 1999
World Methanol Conference, this comprises a pre-reformer, a Davy steam reformer, an ICI /
Syntetix LPM unit, a Davy steam raising reactor and a conventional distillation system.

• Lurgi

The Lurgi reactor is a tubular reactor cooled by water on the outside, producing steam. Gas
recycle is also used to control the reaction. The Lurgi process is more efficient, but tubular
reactors are more expensive to build and their capacity is limited.

Methanol plants are usually self-sufficient in utilities such as steam and electric power. They
can also be designed to produce excess power and/or steam for use by other processes within
a petrochemicals manufacturing complex.

36
4.3.2 Methanol-to-Gasoline Process

Prior to its merger with Exxon, Mobil had developed and commercialised its own proprietary
methanol-to-gasoline (MTG) process. Syngas is first produced, converted to methanol using
standard technology and then converted directly into high-octane gasoline.

Mobil carried out the initial development of the process in the 1970s and installed a plant at
Motunui in New Zealand using fixed-bed reactors. The design utilised ICI and Davy
technologies for initial methanol production and the MTG process for conversion. The plant
was commissioned in October 1985 and subsequently sold to Methanex. It produced gasoline
until 1997 when the plant was permanently idled.

A design using fluidised-bed reactors was also developed and demonstrated in Germany in the
mid-1980s as a joint venture between Mobil and German BMFT, U.S. Department of Energy,
Krupp Uhde and URBK.

If the MTG gasoline is to be sold without additional blending, then a further processing step is
required, to reduce the quantity of benzene compounds. The Mobil Heavy Gasoline Treating
(HGT) process is used. The HGT product is then blended with the MTG product to yield a
finished gasoline.
If the MTG gasoline is to be blended with refinery gasoline, the HGT step may not be
required, as the blended gasoline may meet product specifications.

Both the MTG and HTG processes are owned by Mobil and are available under licence.

4.3.3 Methanol-to-Olefins Process

GTO is a new technology which converts syngas to methanol and methanol to light olefins,
primarily ethylene and propylene. Ethylene is the largest volume petrochemical produced
worldwide. GTO is an alternative to naphtha and gas cracking. Because these light olefins are
gaseous, the GTO plant should be located next to a polyolefins plant.
The technology already exists, though no commercial plant yet built is using it. The process
has the advantage of low operating costs compared to a conventional ethylene cracker for
olefins, but capital costs are high, probably discouraging commercial use of this technology in
the near term. Middle East gas producers may be among those to first venture into MTO
conversion. Exxon Mobil, Lurgi and UOP/Norsk Hydro offer process technologies for MTO.

4.3.4 Dymethil Ether (DME) or Dimethoxymethane (DMM)

DME currently is produced in two steps – first gas is converted into methanol; then methanol
is converted to DME. A similar process is used to create a similar product DMM.
DME/DMM have certain advantages over LNG. They are stable fluid products, do not need
intense cold, and can be transported, in smaller volumes, in LPG tankers. DME/DMM needs
less specialized infrastructure for transportation, handling and storage than LNG and capital
costs in building a DME/DMM plant are substantially less than LNG. DME/DMM is a very
clean fuel and can be used both in transport fuels and for power generation: it is free of
sulphur and its combustion in a diesel engine substantially reduces the emissions of
hydrocarbons, oxides of nitrogen, and particulate matter. DME/DMM can be blended into
road diesel to produce a better quality, cleaner transport fuel. In power generation DME is as
clean as regassified LNG and on a volume basis has a higher calorific value.
Then why hasn’t DME/DMM supplemented LNG, if not replaced it? These liquefied forms of
natural gas have two substantial drawbacks. Firstly, DME/DMM is expected to be fairly

37
capital intensive. BP has been considering a $350 million, 20-30 MBD plant, based on
Mideast gas production, for exports to India as part of a $1 billion JV with ONGC. That is a
cost nearly on par with current GTL oil product technology. A second drawback, and perhaps
more difficult to overcome, is that DME/DMM production involves a substantial loss of
energy in its two-part conversion, of gas to methanol and methanol to DME/DMM, with up to
20% of gas loss in processing. In contrast, oil product GTL processes are far more efficient,
and even with boil-off losses, LNG remains a more efficient gas transport option.

4.4 Direct Conversion of Gas

The direct chemical conversion of methane in liquid products is an extremely old objective of
research, recently revived also to industrial level. To achieve it, knowledge must be
transformed in technology. The scientific discoveries have created the presuppositions to
move on three principal drivers: the partial oxidation, the pyrolysis and the coupling. The
coupling, considered for a long time as the most promising, faded into the background with
fundamental and theoretical review.
The partial oxidation, on the wave of the interdisciplinary academic researches, offers
opportunity to deepen. From the traditional pyrolysis, the catalytic dehydroaromatization is
finally discended, a "outsider" that could be winning.
The technologies today nearer to the phase of industrialization are however penalized by a
process in two stages: the conversion of methane in synthetic gas and the following
transformation of the synthetic gas in liquid. The cost of syngas production, in fact, covers up
to the 60% of the plant’s costs. It is therefore evident the interest in the development of
processes based on the direct conversion of the methane to liquid or to higher added value
products.
The most important factor of all the processes of conversion of the methane is the elevated
thermodynamic stability and the kinetic of such hydrocarbon. The principal chemical –
physical quantities that determine the reactivity of methane are the strength of the bond C-H
(104.8 kcal/mol) and the very high ionization potential (12.5 eV), the protonic affinity (4.4
eV), particularly low as the acidity (pKa 48). Besides, since the products of the reaction of
conversion are often hydrocarbons more reactive of the methane itself, the processes of direct
conversion have to operate under conditions that are against the competitive reactions. This is
really the key element that has made, nowadays, the indirect way (synthesis MeOH, DME,
Fischer-Tropsch) more promising towards the direct conversion.
The processes of direct conversion can use as reagents oxygen, nitrogen oxides, halogens; the
environments of reaction go from the homogeneous one to the multiphase under conditions
from supercritical to the plasma; the energy to favour the transformation is given with the
heat, microwaves, ultraviolet rays, laser or electric fields; the reactive systems can be
molecular, overmolecular, enzymatic and microbiologic.
The methane conversion through partial oxidation brings to the formation of oxygenated
products through the following fundamental reactions:
1
CH 4 + O2 → CH 3OH
2
1
CH 3OH + O2 → HCHO + H 2 O
2
CH 4 + 2O2 → CO2 + 2 H 2 O
3
CH 4 + O2 → CO + 2 H 2 O
2

38
Despite the effect of the thermodynamics, that favours the complete oxidation to H2O and
CO2, the yeld to oxygenated hydrocarbons, on laboratory scale, is near to 20%.
The pyrolysis of methane or thermal coupling, is conducted at very elevated temperatures
(1500 °C), where the reactions of dehydrogenation of the carbon prevail:

2CH 4 → C 2 H 2 + 3H 2

CH 4 → C + 2 H 2

The pyrolysis is the only direct activation process which has had an industrial development
(for example Huls, Basf, Montecatini, UC). Because of the ethylene competition as building
block for the basic chemistry, it has been used in few applications.
Finally in the coupling with oxygen the reactions:

1 1
CH 4 + O2 → C 2 H 4 + H 2 O
2 2
1 1 1
CH 4 + O2 → C 2 H 6 + H 2 O
4 2 2
CH 4 + 2O2 → CO2 + 2 H 2 O

occur in excess of methane in comparison to the oxygen (for example 2 to 1), at pressures
next to the atmospheric one and temperature between 700 and 900 °C. Besides ethylene and
ethane (with a ratio between 1 and 5), COx and small quantities of superior hydrocarbons in
the range C3-C5 are formed.
The economic driving force of the coupling reaction is the trend of growth of the ethylene
demand (currently around 5% annual) which is connected to that of the most important
derived polymers. The attractiveness of the coupling would increase in case of lack of the
actual raw materials for the ethylene synthesis (light wax or naphtha), that constitute the
charges of the thermal cracking process. The penalisation of the coupling in comparison to the
steam cracking, which emerges from the economic evaluations, is clear if the steam cracking
uses ethane like feedstock (excluding a strong rise of the prices of the raw material); more
moderate in the case of the light naphtha. Instead, where charges of light hydrocarbons are not
accessible, ethylene production from methanol is preferred. So you can hypothesise strong
perspectives only if you arrive to conversions and selectivity of the order of respectively 50%
and 80% (whose attainment has opened a theoretical controversy).

39
40
 5. GTL ECONOMICS
The following section of the document will be focused on some of the economic aspects
related to the GTL industry that affect today’s sector, such as the potentiality of the feedstock
resource, natural gas, which is used as an input in the production process will be discussed in
section 1. The geopolitics of the resource and the OPEC cartel behavior will be seen in section
2. And finally, in section 3, will be discussed the aspects of the financial feasibility of the
investment in this sector.

5.1 Potential feedstock resources and perspectives

As we have previously stated, the feedstock for the production of GTL liquids is natural gas
which presents the biggest reserves in the Middle East with around 40%, the former Soviet
Union with more than 30%, Africa 7.8%, Asia with around 8%, North America 4.2%, South
and Central America 4.1% and Europe with around 4%. In terms of countries, Russia
represents the first place with proved reserves in 2003 of around 1,600 TCF followed by Iran
with 942 TCF and Qatar with 910 TCF, these last two countries being members of the OPEC.

The price of the produced gas that was traded in the market in 2003 was established at an
average of $ 4.4/MMBtu in the European Union and in the United States at $5.63/MMBtu in
the Henry Hub with a wellhead price close to $2.00/MCF1. This implication states that the
GTL market will need to be supplied by a cheaper gas in the order of $0.5/MMBtu to compete
with oil at $15-$20/Bbl; under this price Foster Wheeler Energy Ltd. estimated in 2001 that
the unitary cost of production of GTL is around $18/Bbl (= 4.5 of feedstock cost, 4.5 of
operating cost and 9 of capital repayment).
Thus, for GTL to be economical, it will probably have to rely on “stranded” gas resources that
are remote from sites of consumption and lack pipeline transport. As said at the beginning of
this document, today such resources exist in the form of flared, vented, re-injected, and
stranded associated and non-associated natural gas.
The vast amounts of the stranded gas reserves, estimated in almost one third of the world’s
proved natural gas reserves, are presented in regions such as the former Soviet Union with
39% of the total stranded gas, the Middle East with 31% , Europe with 9% and Asia, Africa
with 6% among the most important. Russia with its huge gas reserves is a key candidate, but
transportation costs to an ice free port will limit the availability of low cost stranded gas2. It
would thus appear that the Organization of Petroleum Exporting Countries (OPEC) have the
potential to become key suppliers in this sector. In fact the likely low cost of producing
stranded gas in the Middle East suggests that a few nations might also dominate the supply of
GTL feedstock. A prime example of this circumstance is the giant North Field in Qatar, where
a 34,000 b/d GTL´s plant is under construction by the consortium Qatar Petroleum-
Sasol/Chevron. In a 25-year operating lives, this GTL plant plus the current LNG
commitment, expect to require 20 TCF and 31 TCF of natural gas respectively; amounting for
a total as much as 50 TCF3, but accounting for about 5% only of the country’s estimated total
gas reserves of some 909 TCF. See Table1.

1
British Petroleum (BP),“Statistical Review of World Energy, Full Report 2004”.
2
OPEC, “Oil Outlook to 2020”, June 2002
3
Petroleum Economist, “Stranded gas: a vital resource”, May 2002.
41
 Table1: Proved natural gas reserves, stranded gas, gas vented/flared and re-injected per
region and country.
(In TCF)

Region Proved Reserves (1) Stranded gas (2) (3) Vented / flared and re-injected (1995) (3)
(Dec. 2003)
Total % Total % Total V. Total R. Total %

North America 258.2 4.2 80 4 0.5 4.1 4.6 31.1

USA 184.8 3.0 0.3 3.6 3.9 26.4
Others 73.4 1.2 0.2 0.5 0.7 4.7
South & Central 253.7 4.1 100 5 (b) 0.4 0.8 1.2 8.1
America
Venezuela 146.5 2.4 0.5
Bolivia 28.7 0.5
0.3
Others 78.5 1.2
Europe-Eurasia 2,199.0 35.4 960 48 (a) 0.1 0.6 0.7 (c) 4.7
Norway 86.9 1.4 0.5
Turkmenistan 102.4 1.6
Russia 1,659.1 26.7 0.1
Others 305.6 5.7
Middle East 2,531.8 40.8 620 31 0.9 2.2 3.1 20.9
Iran 942.2 15.2 0.4 0.9 1.3 8.8
S. Arabia 235.7 3.8 0.4
Qatar 909.6 14.7
UAE 213.9 3.4
1.3 1.8 12.2
Iraq 109.7 1.8 0.1
Kuwait 55.0 0.9
Others 65.7 1.0
Africa 486.5 7.8 120 6 1.6 2.8 4.4 29.7
Nigeria 176.4 2.8 0.9 0.1 1.0 6.8
Algeria 159.7 2.6 2.4
Egypt 62.0 1.0
0.7 3.4 23.0
Libya 46.4 0.7 0.3
Others 42.0 0.7
Asia Pacific 475.6 7.7 120 6 0.30 0.6 0.9 6.1
Indonesia 90.3 1.5 0.5
Malaysia 84.9 1.4 0.1
Australia 90.0 1.4
China 64.4 1.0
Others 146.0 2.4
TOTAL WORLD 6,204.9 100 >2,000 100 3.8 11.0 14.8 100
Total OPEC 3,090.0 49.8
Total NON OPEC 3,114.9 50.2
Notes:
(a) The 48% of Stranded gas in the Europe-Eurasia region is represented by 39% in the former Soviet Union and the rest 9% in Europe.
(b) The 5% of Stranded gas in the South and Central America region is represented by 4% in the Caribbean and 1% in South America.
(c) This number is underestimated as it does not show the contribution of Russia due to the lack of information.
Sources:
(1) British Petroleum (BP), “Statistical Review of World Energy, Full Report 2004”.
(2) The Petroleum Economist, “Stranded gas: a vital resource”, May 2002.
(3) U.S. Department of Energy, “An assessment of energy and environmental issues related to the use of GTL in transportation”,
November 1999.

42
According to table 1, the highest quantity of gas flared/vented and re-injected is in North
America with 31% of the total, followed by Africa with around 30%, the Middle East with
21%, South and Central America 8%, Asia Pacific with 6% and Europe-Eurasia 5%.

Is estimated that the quantity of gas flared or vented and re-injected in the world increased
from 3.2 to 3.8 TCF and from 8.2 and 11.0 TCF respectively in the period 1990-1995; the
whole sum represented a growth from 11.5 to 14.8 TCF of gas produced but unused. It is
worthwhile to mention that this unused gas counted for around 14% of the total annual
production.

If we know that a typical GTL facility transforms 1 TCF of natural gas into 100 MM barrels
of GTL fuels, we may say that using half of this gas, 7.5 TCF, we can obtain around 750 MM
barrels of GTL fuels a year. Also, if a typical Fischer-Tropsch process implies that on average
we will get around 50-75% of Middle distillates (Jet fuel/Diesel), 15-25% of Naphta and 0-
30% of Lubricants and waxes from this fuel, we can expect to obtain around 375-562.5 MM
barrels of Middle distillates, 112.5-187.5 MM barrels of Naphta and 0-225 MM barrels of
Lubricants. This gross amount may be estimated to fulfill the annual OECD demand of diesel
in around 8%-13%4 and double that of Italy’s. See Table 2.

Table 2: Potential supply and demand for GTL’s final products “synfuels”
(In Million Barrels)

Estimate potential production of GTL Synfuels from 1995’s gas

flared /vented and re-injected
Naphta Diesel Oil
50% Gas 112.5-187.5 375-562.5
flared/vented and
re-injected used as
feedstock
(7.5 TCF)
Consumption of Naphta and Diesel Oil in 2003 (1)
Naphta Diesel Oil
OECD 887.1 4,362.3
European Union 277.6 1,776.2
Italy 36.4 207.9
United Sates 100 1,375.4

Source: (1) International Energy Agency (IEA), “IEA quarterly statistics”, Third
quarter 2004.

However, some studies reveal some skepticism about the development of the industry caused
by the potential technical and project risk and state that the GTL production in 2015 will
arrive to 1 MM/Bbl/day (365 MM barrels a year), but show some optimism beyond 2020
showing a production of 11MM/Bbl/day (4015 MM barrels a year)5.
Also, a similar study carried out in this sense showed that the demand of natural gas used in
GTL projects will be 1.4, 3.0 and 7.5 TCF in 2010, 2020 and 2030 respectively, representing
“synfuels” production of 183, 548 and 913 MM barrels for those years. What is more
surprising, however, is that this production will only satisfy at most 1.34 % of the total world
demand of diesel/gas oil in 2010. See Table 3.

4
This estimation is based under the assumption that the same amount of gas flared/vented or re-
injected in 1995 is the same of nowadays.
5
U.S. Department of Energy, “An assessment of energy and environmental issues related to the use
of GTL in transportation”, November 1999.
43
Table 3: Projection of potential supply and demand for GTL’s final products “synfuels”

2010 2020 2030

World Natural Gas Demand by GTL (in TCF) (1) 1.4 3.0 7.5
Total GTL production (Million Bbls) (1) 183 548 913
Middle East 92 302 342
Africa 30 82 206
Other regions 62 164 365
Total Diesel/Gas Oil Demand (Million Bbls) (2) 10,272
North America 1,470
Europe 2,109
East Asia 3,757
Latin America 984
Middle East 719
Africa 411
Others 822
Diesel/gas oil demand supplied by GTL (In %) 0.89- 1.34 (a)
Notes:
(a) (Total GTL production*q) / Total diesel demand. Where “q” represents the quota of middle distillates obtained
from the synproducts, this quota ranges from 50% to 75%.
Sources:
(1) IEA, “World Economic outlook 2004”
(2) Chem Systems Inc., “Developments in Natural Gas to Liquid Fuels Conversion Technologies”, 1998.

5.2 The Geopolitics of Gas to Liquids (GTL) and the OPEC cartel behavior
From the last century oil has imposed its supremacy in being the first source of primary
energy used worldwide. Its unequal geographical distribution has caused a misallocation of
resources evidenced from a transfer of wealth from oil consumers to oil producers due to non-
competitive oil pricing and the loss of potential GDP for the import countries due to price
shocks, among others6.
The misallocation of resources has brought to political and military actions reflected, for
instance, in the creation of the OPEC in 1960, the Persian Gulf War in 1990, the current war
in Iraq, the concern of the import countries (i.e. United States) to assure their provision for the
future through the search and diversification of new suppliers and the policy of reducing oil
imports through the substitution with other energy sources.
Liquid fuels obtained from natural gas have the physical and chemical properties to become
substitutes of those produced by oil, allowing this way less dependency on this last, but still
dependently on its feedstock provision. But a question arises: if GTL fuels bring more
competition in the liquids market and considering that low cost natural gas reserves are
situated mainly in the OPEC countries, will this situation determine that the GTL fuels market
be controlled by the cartel?. See Table1.

The security in the provisions of liquids fuels derived from natural gas will undoubtedly
depend on:

a) The geographical distribution inside and outside the OPEC nations;

b) The availability of low cost natural gas

In relation to the geographical distribution of natural gas, the former Soviet Union (mainly
Russia) counts for around one third of the world’s gas reserves and in the OPEC countries the
highest quota is presented in Iran with 30%, Qatar 29%, Saudi Arabia, the UAE and

6
Estimates of the past costs to the U.S. economy of the use of monopoly power by the OPEC cartel
ranged from $1 to $4 trillion dollars in 1995.
44
Venezuela with 8%, 7% and 5% of the OPEC’s total respectively. Also, based on table 1, it is
estimated that around 39% of stranded gas in the world is in the former Soviet Union, 31% in
the Middle East and 9% in Europe.

In relation to the second aspect, the availability of low cost natural gas for conversion into
liquids, an assessment found that while a great deal of gas is potentially available, nearly all
of the low cost gas appears to be in the Middle East. Of the 2,065 TCF of eligible gas
identified, 665 TCF is estimated to be available at less than $1/Mcf. Of this, more than 80
percent can be found in three countries: Iran (296 TCF), Qatar (128 TCF) and Saudi Arabia
(96.3 TCF). While states of the former Soviet Union (mostly Russia) have vast quantities of
undeveloped, non-associated gas (877 TCF), only 9 TCF were estimated to be available at
less than $1/Mcf, primarily due to higher costs for transportation. According to the study’s
estimates7, about half of the former Soviet gas reserves would become available between $1
and $3/TCF.

The previous numbers confirm the potential development of GTL within the OPEC members.
If OPEC were to attempt to behave as a joint liquid fuels cartel, the more even distribution of
resources would make it more difficult for a single nation to act as a leader, but it is not clear
whether this would also make it more difficult for OPEC members to reach a consensus.
However at this point another question arises: under which conditions the introduction of
replacement fuels derived from natural gas produced from Non-OPEC and OPEC members
will change the OPEC market power and determine its provision and actions towards this new
industry?.

The existence of a significant substitute for petroleum will change market competition in at
least three significant ways. First, the cartel’s pricing problem will now include the joint
maximization of profits over two feed stocks instead of just one. This makes the cartel’s profit
maximization problem more complex8. Second, the creation of a new substitute increases the
world price elasticity of crude oil demand and lowers the optimal monopoly price of oil
regardless any OPEC’s GTL production. Third, since the distribution of gas reserves among
cartel members is substantially different from those of oil, a change in the balance of power
within the cartel occurs and this affects its internal decision making and, most importantly, its
ability to agree on and enforce optimal monopoly pricing decisions.
In this sense, a study carried out for the US Department of Energy9 in 1999 made a simulation
model of a world petroleum and GTL market for a 20 year period. All the scenarios
considered10, confronted with no GTL production (Reference Case), showed that an
introduction of this new technology reduces world oil prices and cuts OPEC profits.

7
U.S. Department of Energy, “An assessment of energy and environmental issues related to the use
of GTL in transportation”, November 1999. In reference of the study: Duleep, “Energy and
Environmental Analysis”, 1993.
8
The cartel’s profit maximization formula for two products (oil and gas), also known in the economic
literature as Von Stackelberg Theory for Substitute Goods, is :

Max ∏ = (Poil – MCoil)*Qoil + (Pgas – MCgas)*Qgas

Where: P= Price; MC= Marginal Cost; Q= Quantity.
After solving this maximization problem, the optimum price of oil tends to its marginal cost, allowing
this way a reduction in the cartel’s mark-up, “guiding” the oil market to the efficiency.
9
U.S. Department of Energy, “An assessment of energy and environmental issues related to the use
of GTL in transportation”, November 1999.
10
Three scenarios were considered:
(1) Only rest of the world GTL production
(2) Only OPEC GTL production
(3) Rest of the world and OPEC GTL production
45
The price decrease is not large, $0.26/bbl in 2006 in the Rest of the World & OPEC GTL
scenario, increasing to $1.41 by 2020. The 6 percent reduction in price versus the Reference
Case in 2020 is the result of the substitution of 2 percent of the world’s oil supply with GTL.
Of course, the price reduction depends on the assumption that OPEC continues producing oil
at the same rate as in the Reference Case.
The simulations indicate that OPEC would suffer a loss of profit versus the Reference Case
even if it produced GTL and the Rest of the World does not. A reason for this result is that the
profit margin on GTL is much smaller than the one on oil. Whereas it is assumed that OPEC
can produce a barrel of oil for $4, a barrel of GTL costs $11 (these costs exclude the value of
the resources produced). Thus, OPEC looses $7/bbl by shifting a barrel of output from oil to
GTL. As a result, even though OPEC’s share of the liquid fuels market and its total output
increased in the OPEC GTL scenario, OPEC’s total profits decline by almost as much as they
do when only the Rest of the World resources supply GTL. Again, these results depend on the
assumption that OPEC maintains in the Reference Case the level of oil output. See Table 4.

Table 4: OPEC profitability due to GTL production

Scenario OPEC Revenues OPEC Profits Change in Profit

Billion 1997 $ (a) Billion 1997 $ versus Reference
Billion 1997 $
Reference Case (1) 7,237 5,806 0
R.O.W (2) GTL 7,079 5,647 -159
OPEC GTL 7,167 5,690 -116
R.O.W & OPEC GTL 7,044 5,567 -239

Notes:
(a) The amounts represent the revenues gained for the 20 year prevision simulation
(1) The reference case is the case with no GTL production in the world.
(2) R.O.W: Rest of the World

Source: U.S. Department of Energy, “An assessment of energy and environmental issues related to the use of GTL in
transportation”, November 1999.

The implication is that producing GTL may not be in OPEC’s economic interest but does not
mean that it is against the economic interests of a particular OPEC member. A state like
Qatar, for example, with vast resources of natural gas and less of oil, is certainly finding its
individual economic interest by the developing of GTL production. However, this action
could weaken the position of OPEC as a whole.
Still, the results of the study strongly indicate that the development of even a modest quantity
of GTL supply could be beneficial to world liquid fuel markets by exerting downward
pressure on oil prices, mitigating the potential impacts of oil supply disruptions and reducing
the economic incentive for such disruptions. These results appear to hold whether or not
OPEC itself is a major supplier of GTL.

5.3 Financial Feasibility of GTL

The fall in the cost of GTL technology over the past 20 years makes this an additional
potentiality important source of liquid fuels for the future. Today’s GTL production amounts
to just 0.2 MM Bbl/d and the only significant current commercial use of GTL technology is in
South Africa (primarily using coal). But there is an evident current interest for development in
this industry, declarations of its financial profitability are followed by pilot research and
development projects already underway.

46
One of the studies carried out by Raytheon Engineers & Constructors for the different
competitive GTL technologies used by some companies in the short and long term, reflects
the “positive feeling” toward this sector. See Table 5.

Table 5: Financial feasibility of GTL investments

ECONOMIC ANALYSIS SHORT-LONG TERM CASE

Total installed cost (TIC) Gross Revenue Projected (IRR) Net Present Value Total liquid yield TIC
$ Million $ Million % $ Million b/d $/Bbl
- - 12.9 85 - 29,000
ExxonMobil
- - 14.3 361 - 24,000
- - 12.5 75 - 30,000
Shell
- - 13.2 293 - 26,000
395 86.2 14.5 108 15,300 25,800
Sasol
1,039 264 16.7 442 50,900 20,410
455 77.5 11.2 33 12,000 37,920
Syntroleum
1,258 205 10.7 52 40,000 31,450
468 97.8 13.9 110 16,450 28,450
Rentech
1,268 295 15.4 426 54,900 23,100

373 94.1 16.6 156 15,300 24,380

Intevep
997 282 18.4 547 50,900 19,590
Source: Oil & Gas Journal / Mar.12, 2001. Based on data of Raytheon Engineers & Constructors Inc.

This is a consequence of the positive returns from the investments. In each company scenario,
the first row states the short term situation while the second row the long term one. The time
discrimination is due to the new investment decisions that are to be made in the future as
presumably injected by the growth in demand and the rapid rate of evolution in current
designs. The panorama is optimistic for the whole sample of companies but with more
emphasis for Sasol, Rentech and Intevep as their investment net present value (NPV) is
positive and their internal rate of return (IRR) is higher than the 10% discount rate. Since
GTL is a high risk sector because of the high costs for technology development, the discount
rate level could be increased considering the higher risk premium requested by the sources of
funding. This would reduce the profitability and bring the investments to be unfeasible.

Another interesting aspect shown in the table is that the larger is the quantity (liquid yield)
produced by the plant the lesser are the unitary costs (TIC $/barrel). This is nothing else than
a consequence of scale economies, which explains the preference of a company for a bigger
plant that produces more barrels of synfuels per day.
The constant evolution in the GTL sector allows lowering the number of years required for
the implementation of a project (i.e. from 36-42 months in 1997 to 30-33 months in 2000).
This reduces the time needed to obtain a positive net cash flow, which means that the project
receives the money necessary for its development and operation in a shorter period.

All the different technologies (i.e. Sasol, Exxon and Shell) exhibit similar cash flow
characteristics; around 4 years of construction period (based on 1998 information), 9 years of
debt repayment and constant cash flows of around 400 million $ for the remaining years.
Exxon cash flows are marginally higher during first four years due to lower Capex flows
while Shell cash flows are marginally higher beyond the 14th year due primarily to lower
Opex following repayment of debt. See Graph 1.
What is stated by the graph is the huge amount of investment that, when financed, needs to be
repaid in almost a decade with constant payments of around 100 million $ each year.

47
 Graph 1: Levered Cash flows for different technologies

Debt
Repayment
Complete
450
400
350 Construction
300 Period
250
200
150
100
50
0
MM $

-50 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
-100
-150
-200
-250
-300
-350
-400
-450 Exxon Sasol Shell
-500
-550
-600

Source: Arthur D. Little, "Gas to Liquids Technology: Gauging Its Com petitive Potential" , April 1998.

It is worthwhile to mention that the price of stranded natural gas is determined by the
feasibility of its extraction, its commercialization (transport costs) and its reserves. This
situation is reflected in the price of natural gas used as feedstock and the profitability of the
project as the field location appears to be a critical factor in determining the project IRR.

Graph 2: Natural gas supply cost curve to GTL plant

PNG Fold
(Aus)
Sakhalin Snohvit
1,5 Camisea (Rus) (Nor)
(Per)

1,25 Tangguh
(Ind)
Tierra del
1 NW
Fuego
Shelf
$/MMBtu

(Arg)
Prudhoe (Aus)
0,75
Bay E.
(USA) Venezuela
0,5 Niger
Delta
0,25 North Field (Nigeria)
(Qatar)
0
0 50 100 150 200 250 300 350 400 450 500 550 600
Cumulative Reserves (TCF)

Source: Arthur D. Little, "Gas to Liquids Technology: Gauging Its Competitive Potential" , April 1998.

48
Graph 2 shows the supply curve of natural gas from some fields that could potentially feed
GTL facilities; the cost of supplying natural gas to a GTL facility increases as the difficulty of
its extraction and commercialization (transport costs) increases. Only the Prudhoe Bay and
North Field may utilized to developed GTL as these present a supply cost under today’s
feasible value of $0.5/MMBtu natural gas price.

In order to understand the nature of the costs, Foster Wheeler Energy Ltd. estimated that the
capital expenditure is the cost that represents the 52% of the total, followed by the operating
expenditure, feed costs and other costs (representing the 24%, 22% and 2% respectively).
Since the capital cost is the most “sensitive”, this is disaggregated in that for syngas
production, F-T synthesis, product work up, other process units, utilities and offsites
(representing the 30%, 20%, 15%, 15% 10%, 10% of the capital cost respectively).
The result is that in order for a company to be efficient in the GTL sector, it has to make an
effort to decrease its capital costs through a decrement in the syngas production cost and/or F-
T synthesis cost. Another study carried out suggests that if capital costs could be reduced
from $30,000 to $20,000 barrels per day, the synfuels cost would fall from $16 to $11 /bbl
(with the feed gas price at $0.5/MMBtu)11. Aware of this situation, firms are taking different
approaches in reducing the investment costs of GTL production. Exxon, BP, BG Technology,
Haldor Topse, and ICI Katalco are, for instance, focusing on combining partial oxidation and
steam reforming in a single fluidized-bed reactor to achieve economies of scale.

Another cost that is of concern for a GTL project is that of the feedstock. The industry is
searching for ways to reduce the use of natural gas and to better develop the catalyst process.

Technology developments such as these not only make GTL more competitive in respect to
oil, but also reduce plant size and therefore, the gas field size necessary for economical
operation. The latter is extremely significant from an energy balance perspective because it
can open up an entire realm of small field gas reserves to exploitation.

This is a simple approach with the goal to comprehend the determinants of revenues and costs
without underestimating the complexity of such which generally generate a huge controversy.

11
Oil & Gas Journal, March 12, 2001.
49
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¾ BRITISH PETROLEUM (BP), "Gas to Products (GTP): More Options for Remote
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sfruttamento del gas naturale".
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Challenges".
50
¾ VENKATARAMAN, "Overview of GTL Program- Its Role in Ultra Clean
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¾ VERGHESE, ABB LUMMUS GLOBAL INC., "Transforming Stranded Gas
Resources into Profitable Assets".

51